a look at key issues challenging logistics executives
Thursday, August 31, 2017
Reports of 'Retail Apocalypse' Greatly Exaggerated
BY REBEKAH MARCARELLI
Published:
U.S. retailers are opening 4,080 more stores in 2017 than they are closing and plan to open over 5,500 more in 2018, according to a new research report from IHL Group.
The research reviewed over 1,800 retail chains with more than 50 U.S. stores in 10 retail vertical segments. It found that for every chain with a net closing of stores, 2.7 companies showed a net increase in store locations for 2017.
"The negative narrative that has been out there about the death of retail is patently false," said Greg Buzek, president of IHL Group. "The so-called 'retail apocalypse' makes for a great headline, but it's simply not true. Over 4,000 more stores are opening than closing among big chains, and when smaller retailers are included, the net gain is well over 10,000 new stores. As well, through the first seven months of the year, retail sales are up $121.6 billion, an amount roughly equivalent to the total annual retail sales of The Netherlands."*
According the the research, the total net increase of stores for 2017 is 4,080, including retail and restaurants. Core retail segments will see a net gain of 1,326 stores, while table-service and fast-food restaurants are adding a net of 2,754 locations. In total, chains are opening a net 14,239 stores and closing 10,123 stores. 42-percent of retailers have a net increase in stores, only 15 percent have a net decrease, and 43 percent report no change.
The three fastest growing core retail segments are mass merchandisers such as off-price retailers and dollar stores (+1,905 stores), convenience stores (+1,700 stores) and grocery retailers (+674 stores). The research also shows specialty apparel retailers are seeing the largest number of closings, with a net loss of 3,137 stores. Yet, for every chain closing stores, 1.3 chains are opening new stores.
When it comes to chains shuttering stores, only 16 chains account for 48.5 percent of total number of stores closing. Five of these chains (Radio Shack, Payless Shoesource, Rue21, Ascena Retail and Sears Holdings) represent 28.1 percent of the total stores closing.
"Without question, retail is undergoing some fundamental changes. The days of 'build it and they will come' are over," added Buzek. "However, retailers that are focusing on the customer experience, investing in better training of associates and integrating IT systems across channels will continue to succeed."
Wednesday, August 30, 2017
BRIEF
Ford, Domino's pilot driverless vehicles for pizza delivery
Domino's Pizza and Ford Motor Co. have teamed up to test self-driving vehicles by delivering pizza in Ann Arbor, MI. The two companies also hope to gauge customer reaction to the technology, according to a press release from Ford.
The testing will occur over the next several weeks, with randomly-selected Domino’s customers having the opportunity to receive their delivery orders from a Ford Fusion Hybrid Autonomous Research Vehicle, which will be manually-driven by a Ford safety engineer and staffed with researchers.
Customers who agree to participate will be able to use an upgraded version of the online "Domino’s Tracker" feature to track the delivery vehicle via GPS. They will also receive text messages as the self-driving vehicle approaches that will guide them on how to retrieve their pizza, using a unique code to unlock a specially-designed Domino’s Heatwave Compartment inside the vehicle.
Domino’s has been aggressive in exploring potential new delivery schemes. Last year in New Zealand, the company delivered its first pizza via drone and its interest in assessing self-driving vehicles can be viewed as another step in its willingness to explore other delivery options, likely with an eye toward saving money on labor and improving efficiency. Though Domino's pizza is a different kind of product than many retailers would look to deliver with a driverless vehicle, its experience testing the technology will be closely watched by retailers.
Ford, meanwhile, is currently scheduled to start producing driverless vehicles in 2021, with many of the initial applications to be commercial ones, such as food and package delivery. The company made those comments a little over a year ago and you could argue that not much has happened since, but a lot has to happen to make autonomous delivery vehicles a common sight on the road.
One of the most important things that needs to happen doesn't have to do with the performance of the technology itself, but rather customer acceptance of it. Any company adopting a new customer-facing technology had better find out first how customers feel about using it. For Ford and Domino's, that means getting some sense of customers' willingness to embrace a new way of receiving packages and other deliveries.
It's the same sort of process that companies eyeing drone delivery packages need to pursue. Do customers want delivery drones landing in their front yards? Do they want driverless vehicles pulling up to their curb, and idling while the customer comes out to retrieve their pizza from the special compartment?
Ford and Domino’s have been working together for a while on this project, completing preliminary testing of the self-driving delivery process at Mcity, a simulated urban environment on the University of Michigan’s campus. Now, it's time to find out what real consumers think.
It may be last, but it's not really a mile at all ... yet
Right now, e-commerce's "last mile" is somewhere between six and nine miles, according to a new study. One expert believes it will continue to shrink.
Perhaps it's a minor point, but in businesses like logistics, it's the small details that sometimes matter most.
Consider the currently-in-vogue term "the last mile." It refers, of course, to the final leg of a product's journey through the supply chain—meaning delivery to the customer—rather than a literal distance. As for why it's getting so much attention, it's all about the need for speed in the new world of order fulfillment. Suppliers' ability to meet customer demands for rapid delivery of orders is highly dependent on that last mile of the supply chain. Nowadays, it's not too much to say that the last mile is where sales are lost or won.
While this is true in many industry verticals, nowhere is the pressure more acute than in retail—and e-commerce, in particular. The time when customers were satisfied to have online orders delivered in two to three days is past. The consumers of 2017 expect next-day delivery. It's probably not much of a stretch to say the consumers of 2018 and beyond will expect same-day service, particularly in urban areas.
That's where so-called "last-mile distribution centers" come in. Sometimes called "last touch" centers, these DCs are generally the final point of distribution for goods before they arrive on customers' doorsteps, according to a report released this summer by real estate and logistics services giant CBRE. And they're fast becoming a thing in metro areas: "Last-mile distribution facilities for e-commerce are popping up in close proximity to the population centers of major U.S. cities, creating a foundation for rapid-delivery service that didn't exist on this scale as recently as a few years ago," the report says.
As for what the researchers mean by "close proximity," we're talking under 10 miles. To be precise, CBRE's analysis of the locations of newer last-mile distribution facilities (those opened within the past two years) in the 15 largest U.S. population centers showed that they are positioned, on average, between six and nine miles from the center of the population areas they serve.
Among other findings, CBRE's study revealed a correlation between population concentration and the length of the "last mile." "Denser cities tend to have shorter average distances, such as the six-mile average in San Francisco and the 6.3-mile average in Philadelphia," the researchers wrote in their report. "Meanwhile, cities that are more spread out have longer averages, such as 7.5 miles in Houston, 8.5 miles in Phoenix, and nine miles in Southern California's Inland Empire."
The report left no doubt as to what's driving the trend. "The close proximity of the last-mile facilities to huge populations of customers facilitates online shoppers' growing expectations of nearly instantaneous delivery of their orders," it noted. "Earlier this decade, goods ordered online often were delivered to customers from much larger facilities much farther away, sometimes in other states."
Also notable is the speed with which this scenario has played out. "These close-in fulfillment centers have proliferated within the past two years, underscoring the need for retailers to have large batches of inventory within 10 miles of most of their customers so they can fulfill orders as rapidly as possible," said David Egan, CBRE's global head of industrial and logistics research, in a press release. "This is an entirely new link in most supply chains that delivers on the promise of fast, super-high-performance delivery."
Indications are, the trend has yet to run its course. "Development of last-mile strategies still is in the early stages, so the average distances in many metros [are] likely to shrink a bit more in the coming years," Egan said in the release. If his prediction pans out, "the last mile" may not be a figurative expression much longer.
Sunday, August 27, 2017
Amazon once again flashes its ability to destroy the competition
Jeff Bezos and Amazon have once again shown their ability to wreak havoc on an entire industry.Reuters / Brendan McDermid
By announcing sweeping price cuts at Whole Foods, which it recently acquired, Amazon once again succeeded in wreaking havoc on the grocery industry.
It's just the latest example of the company wiping out billions of dollars of competitors' market caps with a corporate announcement, and it's bound to happen again.
Competitors' stock prices are looking more sensitive to Amazon's news than their own.
Amazon is once again sending shockwaves rippling through the retail industry.
The Jeff Bezos-led juggernaut announced on Thursday that it would start cutting prices at Whole Foods, the organic grocer it acquired for $13.7 billion in mid-June. The pricing overhaul will begin on Monday, it said, the same day the deal is expected to close.
The widespread weakness in the grocery industry highlights an interesting wrinkle that's developed: Companies in Amazon's crosshairs are moving more on what the retail giant is doing than on their news and fundamentals.
Take Sprouts, for example. It fell just 1.7% after its second-quarter earnings report — a piece of news that had to do with its operations. Walmart found itself in a similar situation when it announced results last week, falling 1.6%, even after giving a lukewarm third-quarter forecast.
The collateral damage among grocers is just the latest example of Amazon imposing its will on an entire industry with a simple corporate announcement, leaving billions of dollars of erased market value in its wake. And there's nothing to suggest this dynamic will slow down anytime soon. Retailers are being forced into a new reality where the specter of Amazon lurks at every turn.
It first happened to the grocery industry right after the Whole Foods deal, with the group losing 8% over the following week. Sporting-goods retailers felt similar pain around the same time amid speculation that the sneaker and apparel giant Nike would start selling products on Amazon.
In the end, Amazon added $18 billion in market cap in a week while its competitors lost a total of $31 billion — an almost $50 billion gap.
Only time will tell which industry will be the next to feel Amazon's wrath. It's possible that competing grocers will feel the pain multiple more times before it's all said and done. Or it could be another area entirely.
And that's the scary part: Any section of the retail universe could be next.
Walmart is getting hip, but it’s keeping it a bit of a secret
ModCloth employees model swimwear to promote body positivity in 2015. The company is now owned by Walmart.
Long the proudly uncool symbol of American middle-class consumerism, Walmart is now on a high-end shopping binge that suggests a departure from its pedestrian mass-market roots. The Modcloth and Bonobos acquisitions are just the two most high-profile deals in a litany of trendy e-commerce brands the world’s largest retailer has absorbed in recent months.
Premium outdoor equipment site Moosejaw, home goods website Hayneedle, and online shoe warehouse ShoeBuy.com have all joined the Walmart umbrella in the past year. Walmart is also rumored to be in talks with cosmetic subscription delivery service Birchbox.
Like most of what happens in the retail world these days, the surprising turn can be explained in one word: Amazon. Walmart is frantically bulking up its online operation in a bid to stay competitive with the online shopping juggernaut. And it’s efforts have finally started to pay off in the form of breakneck growth in web sales.
The push isn’t just about ushering Walmart’s existing customer base online, though. The chain must also win over shoppers who already reliably buy that way. Those people tend to be younger, wealthier, and, in some cases, more distrustful of or resistant to Walmart’s yellow smiley than the typical store patron.
To overcome that image problem, the latest additions to Walmart’s brand stable will be wrapped in a new banner, that of its subsidiary, Jet.com. The former startup, which Walmart bought for more than $3.3 billion last year, is the crown jewel of its recent acquisition spree, an all-encompassing retail site that ambitiously took aim at Amazon with a cutting edge price algorithm.
Jet.com may have drifted from its original “Costco-of-the-internet” strategy since its 2015 inception, but it’s purple, tech-ish logo suggests a more forward-thinking company without the baggage of Walmart’s reputation in the mind of most consumers.
Walmart execs confirmed in a recent earnings call that millennial-focused Jet will be the sole home for Modcloth and Bonobos products for now; you’ll never see them in Walmart stores or the company’s own website.
This packaging makes sense; according to a report from Digital Commerce 360, the higher income demographics of Walmart’s new sites match more closely with those of Jet.
Aside from opening up Walmart to a new swathe of customers, the new direction will also help it strategically target some of Amazon’s weaknesses.
Above all else, Amazon is known for its utilitarian convenience and efficiency. While that reputation has been a boon in making it the go-to destination for everyday commodity items, it’s somewhat complicated its efforts to push into more brand-dependent areas like fashion.
Amazon is seen in many of its customers’ eyes as a place to make a quick order when you know exactly what you want, not a site to idly browse new clothes or seek out designer wares.
Amazon seems to understand this. Similar to Walmart, it’s launched most of its most recent forays into in-house apparel labels under new names that give no indication of their behemoth parent.
Here, Walmart has a chance to build Jet.com into a hipper version of Amazon by assembling a range of upscale niche brands with built-in cachet that people don’t tend to associate with Amazon.
Walmart’s not the only traditional retailer thinking along these lines. Target, now a distant rival, has been making its own more modest push into the world of trendy e-commerce.
Earlier this summer, it poured money into mattress delivery startup Casper after deciding against a billion-dollar acquisition. It’s also locked down deals to make its stores the exclusive brick-and-mortar home for online brands like shaving companies Harry’s and Bevel and pet subscription service Barkbox.
This game-plan seems to be a bit more natural fit for Target, which has always made its name as a cheap-chic alternative to drabber big-box counterparts.
But in both cases, the moves show how the existential threat posed by Amazon is forcing mammoth old-school retailers to think outside the big box, so to speak, and form unlikely partnerships with the young upstarts in their industry.
Why Amazon Isn’t Ready for Prime Time in China
Alibaba and JD.com have kept e-commece giant at bay by boosting offerings and dangling discounts
Amazon’s relatively bare mobile platform is a turnoff for Chinese consumers used to seeing a kaleidoscope of colors and attention-getting deals, one analyst said.PHOTO: ZHANG PENG/GETTY IMAGES
In launching its Prime membership program in China last fall, Amazon.comInc.AMZN -0.75%was betting that the lure of hard-to-find Western goods and free international deliveries would be enough to get traction in the world’s largest e-commerce market.
That hasn’t happened, according to retail analysts, underscoring the difficulties faced by U.S. technology companies as they try to compete in a country with high hurdles for outsiders and increasingly sophisticated competitors.
Companies including FacebookInc. and AlphabetInc.’sGOOGL -0.68%Google have struggled with stringent government controls and censorship, while Apple Inc. has seen its iPhone market share decline as Chinese smartphone makers offer less-expensive, high-performing smartphones.
“Over time, companies from Apple to Microsoft are seeing Chinese rivals move up the value chain and narrow the gap between them and their products,” said Mark Natkin, managing director of Marbridge Consulting in Beijing.
Retail analysts say it is largely Chinese competition, and not the ground rules of doing business, that has challenged Amazon’s efforts here. Membership programs aren’t popular in China, and consultants say Amazon’s app for mobile phones—the shopping cart of choice in China—lags behind its competitors in ease of use and appeal.
What’s more, the company’s main pitch to Chinese consumers—authentic Western goods shipped free from abroad—is being weakened as Chinese rivals strengthen their offerings and dangle discounts.
Chinese competitors Alibaba Group HoldingBABA -1.86%and JD.comInc.JD -2.85%have invested heavily to improve their selection of products and spent liberally on promotions and discounts through massive sale campaigns this year, said Jason Yu, China general manager at Kantar Worldpanel, a consumer-research firm.
In its most recent analysis in June, Kantar estimated that Amazon had a 1% share of China’s fast-moving consumable goods, like diapers and food, unchanged from a year ago.
Free delivery, even internationally, isn’t much of a selling point in China either, since overseas shipping costs are free or generally low. An 800-gram can of Aptamil infant formula, for instance, is free to ship from Germany to Shanghai on both Alibaba’s Tmall and JD platforms via bonded warehouses. A similar product is also shipped free by Amazon.
In China, Amazon Prime’s offerings don’t stand out, said Shirley Lu, a Shanghai-based analyst focusing on retail at Euromonitor International.
“Local e-commerce providers have fast deliveries, good customer service and very competitive pricing,” Ms. Lu said. “These are areas Amazon will find hard to beat.”
Free delivery, even internationally, isn’t much of a selling point in China. PHOTO: ZHANG PENG/GETTY IMAGES
An Amazon spokeswoman said the company has had a “strong response” to Prime from Chinese customers since its launch last October, with membership figures more than doubling since the beginning of the year. She declined to provide figures.
Amazon in October last year sweetened its offer by discounting its China Prime membership fee to $30, or half its standard list price. Prime membership costs $99 annually in the U.S.
But membership programs are also a tough sell in China, where high-profile scandals involving beauty chains and health clubs have made consumers wary, said Deborah Weinswig, New York-based managing director at Fung Global Retail & Technology.
JD and Alibaba also offer memberships, but on those sites you don’t have to be a member to qualify for free shipping on most purchases beyond $15. Alibaba’s 88 Membership program is free and rewards frequent shoppers on their site with discounts for high-end brands and free concert tickets. JD’s Plus program costs $22 and dangles unlimited e-books and free exchanges and returns, on top of free shipping for all purchases five times a month.
Furthermore, Euromonitor’s Ms. Lu noted that most Chinese consumers shop on their smartphones, and that Amazon’s relatively bare mobile platform is a turnoff for Chinese consumers used to seeing a kaleidoscope of colors and attention-getting deals.
Mobile-phone shopping will account for more than 60% of China’s total e-commerce this year, about $720 billion, Boston Consulting Group analysts estimated.
Wang Hao, a 38-year-old internet entrepreneur in Shanghai who buys everything from steaks to computer parts online, said he found Amazon’s site “as bland as plain water.” JD’s website, a riot of red and orange hues, “makes one feel festive and in the mood to shop,” he said.
Finally, the video streaming service included in Amazon Prime—with its award-winning original content—isn’t available in China due to censorship rules.
Visitors gather at an Amazon booth during the 2016 China International Electronic Commerce Expo.PHOTO:GETTY IMAGES
Still, China is an important piece of the puzzle for Amazon in its plans to one day haul and deliver packages and cargo globally for others as well as itself.
The online retailer has been building its business with manufacturers and sellers in China, encouraging them to sell direct to U.S. consumers via Amazon.com. As the company sends more merchandise from China to the U.S.—and especially as it develops its own air-service offerings—it needs to fill trucks and planes going both ways.
As Amazon adds international shipping capabilities including its own planes, “in order for it to be cost effective, they need to have goods that are going out of the U.S. and into the U.S. to do it profitably,” said John Haber, chief executive of supply-chain consultancy Spend Management Experts.
Going forward, Robert W. Baird & Co. Amazon analyst Colin Sebastian expects Amazon to continue to focus on its global store, which allows Chinese consumers to buy products from countries including the U.S. and the U.K. That is an area where it can likely gain a better foothold because of its reputation as a place to buy authentic Western goods.
“They’ve dialed back their strategy and expectations from trying to compete as a mainstream online retailer,” Mr. Sebastian said.
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